Rood v. Commissioner

Edward Rood (plaintiff) incurred gambling debts at the Caesar’s Palace casino (Caesar’s) in Las Vegas. By December 1985, Rood owed Caesar’s $435,000 based on credit extended to Rood during trips to the casino in May and October 1985. Rood paid a total of $80,000 to Caesar’s in 1986 and 1987, but he still owed Caesar’s $355,000 by March 1988. In May 1988, Caesar’s informed Rood that the casino would accept a lump-sum payment of $142,000 to satisfy the debt if Rood paid before June 5, 1988. Rood did not make that payment but continued to negotiate with Caesar’s. Ultimately, Rood paid Caesar’s $100,000, and Caesar’s agreed to write off the remaining $255,000 balance. Rood did not report the $255,000 write-off from Caesar’s on his 1988 federal income-tax return. The Commissioner of Internal Revenue (the commissioner) (defendant) determined a deficiency of $60,457 in Rood’s 1988 income tax, concluding that Rood had realized income from the cancellation of the gambling debt. Rood challenged the commissioner’s determination in the United States Tax Court, claiming that the debt was disputed. Rood asserted that because he had paid Caesar’s in settlement of the dispute, he had not realized any income from the cancellation of the $255,000. Rood also claimed that he had hosted a charity golf event at Caesar’s in December 1985 and had invited several players to gamble on his credit, but Caesar’s had failed to record repayments made by those other players. Rood claimed that he had personally lost $80,000 gambling during the tournament. Rood asserted that he had an ongoing telephone dispute with Caesar’s about the debt, but he had no corroborating evidence, and the casino’s records did not support Rood’s claims about the alleged December 1985 events or his claims about disputing the debt.